Market

Friday, May 31, 2013

MNC RETAIL GIANTS-INDIA TO "BEND" THE FDI POLICY FURTHER?

After the euphoria about the likely massive inflow of foreign investment in multi brand retail market operations in India, the earlier enthusiasm seems to be fading in the light of the prevailing ground realities in the country. Many critics raised the issue regarding the adverse impact the new policy would have on the 8 million and odd domestic traders and small stores because of the deep pocket the MNCs have in aggressively pushing their agenda. Eventually it was feared that millions of people would be deprived of their livelihood by the modern air conditioned super markets and malls that may come up under the aegis of internationally established and recognized brands. Now comes the news that some of the major global players are putting pressure on the Government to modify the policy and they seem to be "concerned" about the preconditions like mandatory procurement of 30% of their products from local sources and investment requirement on back-end operations, the very heart of the policy to protect the local interests. Here is a take on this "behind the scene" maneuvering going on at Delhi to influence the government!

"Among the norms making global players jittery are the 30 per cent mandatory sourcing from small and medium enterprises, at least 50 per cent investment in back-end infra and state-wise approvals. The government's stand on not allowing FDI in e-commerce is also seen as a hurdle, as most foreign chains have been pushing the on line format to cut cost and beat competition. According to highly-placed sources, the French retailer, which was keen to expand India footprint from being just a cash-and-carry (wholesale) player, is now "going slow" and might even decide to "review" its investment plans, if things didn't go according to its expectations. Top Carrefour representatives, in their meetings with the government, are learnt to have demanded certain significant changes in the policy.To address foreign retailers' concerns and to woo them back, the commerce ministry is understood to be planning to issue a comprehensive clarification. Asked if the company was reviewing its India plans and had conveyed its disappointment to the French and Indian governments, Carrefour's India spokesperson said the company had "no comments" to offer. Besides India, where it only has cash-and-carry operations, Carrefour is present in two other Asian markets - China and Taiwan. As of December 2012, it had 218 hypermarkets in China and 61 hypermarkets and three supermarkets in Taiwan. Over the past few months, it has withdrawn from key Asian markets like Singapore, Malaysia and Indonesia, to reduce debt and generate cash flow. Among other geographies, it has exited from Colombia and cut stake in Turkish business, triggering speculation it might withdraw from there, too. In India, Carrefour runs a fully-owned cash-and-carry business, with four wholesale outlets - one each in Delhi, Jaipur, Meerut and Agra. It has yet to identify an Indian partner for retail operations.On the other hand, the US' Walmart, which has 20 wholesale outlets in India under a 50:50 joint venture with Bharti, is expected to extend the partnership for front-end retail, too. The UK's Tesco has a franchise agreement with the Tata group for back-end and wholesale; these two are also likely to extend the partnership for retail"

Whether government will buckle or not remains to be seen. However one thing is clear about the so called "muscle" of MNC retailers which was feared to annihilate the poor "mom and pop" stores round the corner of ever street in the country. In spite of massive efforts and investments by many industry giants who entered the retailing sector during the last one decade the organized players have not been able to capture even 5% of the business generated by this sector! Only future will tell whether MNCs will be able to fare better than their domestic counterparts. If government does relax the provisions related to domestic procurement and investment in back end infrastructure, it does not need any extra intelligence to predict that India will be swamped by cheap Chinese products sounding a death knell for the domestic players. Already Chinese products are dominating the markets for many consumer products but food products from China are yet to make a mark. One can only hope that government will stick to the original policy without bending backwards to the clout of some of the retail giants who are eying the lucrative Indian market.